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  • Geordie Mark Focuses On Miners Making Money At $1,200/Oz Gold

    Gold producers certainly needed a break, and now they have two, reports Haywood Securities Mining Analyst Geordie Mark. Much lower energy costs and the strength of the U.S. dollar mean that producers can and do make money at $1,200 per ounce gold. In this interview with The Gold Report, Mark touts the virtues of three multi-mine producers that have exploited their free cash flow to expand their operations and make prudent acquisitions. And he highlights two near-term producers in Africa that should soon produce good margins and reward shareholders.

    The Gold Report: Gold has traded this year in a range close to $1,200 per ounce [$1,200/oz]. Do you expect gold to maintain this range for the rest of the year?

    Geordie Mark: Yes. Our 2015 outlook is $1,250/oz, and thereafter we project a flat outlook to manifest a more agnostic view on the commodity. We employ this approach as it facilitates greater correlation between cash flow expectations and our view of operational performance.

    TGR: What are the factors keeping gold at $1,200/oz?

    GM: We see gold demand support predominantly arising from Asia, particularly in India and China, but also note recent rhetoric from Russia outlining the potential of increasing the country's metal inventory.

    TGR: When we spoke last year, you said you anticipated a gold-silver price ratio of 60. Today, the ratio is 70. What's your forecast for the price of silver for the second half of 2015, and what's your forecast for the ratio?

    GM: Our silver forecast is $18/oz, which translates to a ratio of about 70. Silver's supply/demand fundamentals are somewhat different than gold's, as much silver is derived as a byproduct from base metal production. Even so, we are seeing ever-increasing supplies of silver moving into various investor-oriented vehicles. For example we have seen the silver balances within exchange-traded funds [ETFs] hold more support compared to gold ETFs in recent years. The evolving supply-demand picture for silver shows that this metal is becoming more and more like gold in that its demand is increasingly reliant on investor participation.

    TGR: Is gold production sustainable at $1,200/oz, and, if so, for how long?

    GM: Gold production costs have come down over the last couple of years, due to mine optimization, lower staffing levels, cheaper energy and the strength of the U.S. dollar across a basket of currencies. Global gold production appears to have actually increased relatively steadily since 2008, albeit in a more recent pricing environment where the metal price has exhibited notable headwinds. Gold at around $1,200/oz should result in sustainable production for some time, particularly in operations outside the U.S., such as Canada, Australia and New Zealand, but ultimately the sector needs additional discoveries to replace the currently depleting reserves base.

    TGR: You mentioned mine optimization. To what extent are gold producers now skimming off the top: rearranging their mine plans to get at the easiest part of their ore and the ore that is of the highest grade?

    GM: Ultimately, mine-plan optimization is a dynamic process. The first notable change happened in 2013, but there remains a steady evolution in the cost structure of individual operations and the mechanisms [e.g., mining plan modifications, cut-off grade variations and staffing profiles] in which they moderate overall costs. Thankfully, and in addition to the aforementioned, many input costs [e.g., fuel, reagents and steel] have winnowed more recently to foster operating margin protection and/or expansion.

    TGR: To what extent are gold producers benefiting from the collapse of the price of oil?

    GM: We've witnessed some significant changes in cost structure from many producers as recorded in Q1/15. They certainly have been saving significantly on the operational cost side as oil slid into the $60 per barrel range. This precipitous drop in oil prices helped those producers with a significant mining fleet, as well as those sourcing power via on-site fuel generated power. In conjunction with the recent stability in the gold price, this pricing drop has allowed for the protection of operating margins.

    TGR: For how long can gold producers expect to benefit from low oil prices and a strong U.S. dollar?

    GM: We view these as short-term phenomena, but do not project a specific date or catalyst to change the status quo. Our team sees oil prices moving higher over time, certainly in the mid-term. As for the U.S. dollar, we project the currency holding its strength against the basket of other currencies over the near term. That is good news for resource companies with operations in the European Union, Asia, Australasia, South America and those countries linked to the South African rand, like Namibia.

    TGR: Of the companies you follow, which are your favorite gold producers?

    GM: If you're looking for free cash-flow generation and producing yield with some growth, we like Tahoe Resources Inc. (NYSE:TAHO) for exposure to silver and gold in the Americas.

    If you're looking at Asia and Australasia, we like OceanaGold Corp. (OTCPK:OCANF) [OGC:TSX; OGC:ASX]. This company boasts modest growth in the near term and delivers solid operating margins while also offering modest dividend yield.

    If you're looking for significant growth and a gold producer looking to put another operation into production over the nearer term, we like B2Gold Corp. (NYSEMKT:BTG). It has operations in the Philippines, Nicaragua and Namibia and has begun infrastructure development at a fifth potential mine, Fekola in Mali.

    These companies have all witnessed recent operating cost reduction arising because of lower energy costs and weaker local currencies.

    TGR: Earlier this year, Tahoe bought Rio Alto Mining. How does the new Tahoe differ from the old company?

    GM: The takeover of Rio Alto and its Peruvian assets, the La Arena gold mine and the Shahuindo gold project, have bolstered Tahoe's production profile and its technical expertise profile and given it jurisdictional diversification. The company is now producing a significant amount of gold-220,000 oz [220 Koz] from La Arena last year-to add to the silver it produces from Escobal in Guatemala. It has come close to doubling silver-equivalent production as a result of the merger. It now has significant free cash flow that it can put to work to developing Shahuindo, which is scheduled to begin production in early 2016. Bringing Shahuindo on-stream is expected to aid cash flow generation that ultimately could be used to fund further acquisitions.

    TGR: What's your opinion of Shahuindo's prospects?

    GM: It looks to be a low-cost build, with a modest capital expenditure [capex] for an initial Run of Mine heap leach operation that would likely move to a larger scale multi-stage crush, heap leach mine. Senior management from both Tahoe and Rio Alto has heap-leach experience, and with La Arena relatively proximal to Shahuindo, they have significant operational experience within Peru. These synergies certainly boost Shahuindo's performance and growth potential.

    TGR: B2Gold is another company with jurisdictional diversification, with mines in Nicaragua, the Philippines and now, Otjikoto in Namibia. Having visited Otjikoto, how do you rate its ramp up?

    GM: Otjikoto began commercial production last quarter, following a first pour in December 2014. This project was basically on time and on budget. That's rare for mining projects. We see Otjikoto as being the platform for the company's production expansion within Africa, and reportedly appears to be operating ahead of budget year to date. Next up is Fekola in Mali. Team members that built Otjikoto are in Mali now, developing the project's infrastructure, and further team members are expected to migrate to Mali over time as the Otjikoto expansion is completed next quarter. The Fekola feasibility study was just delivered, and we believe that B2Gold's board will likely make a formal development decision soon given its anticipated low opex and life expansion potential beyond the currently outlined 12.5 years.

    TGR: On May 20, B2Gold announced it had secured a $350 million [$350M] credit facility. What do you make of this?

    GM: It resolves a perceived overhang. The market had believed that the company would be forced to tap the equity market to fund its development and expansion plans. We see the $350M facility negating the need for the company to issue shares to fund growth in the near term. The new facility, which is now closed and the first $150M draw, is expected to be used primarily to fund work at Otjikoto, such as the development of an underground mine at the Wolfshag zone, as well as the development of Fekola. The revolver facility also has the capacity to be expanded to $450M, which gives further support to the company's argument for not needing to draw on the equity markets. In our view, if commodity prices remain stable, we believe that B2Gold can fund its development projects with its new revolver facility and cash flow from its existing portfolio of assets.

    TGR: Moving on to OceanaGold, how is this company evolving?

    GM: It has three producing mines, one of which, Reefton in New Zealand, will close this year. Oceana has shifted its focus to the Philippines with the commissioning of Didipio, which will produce 100 Koz gold and 14,000 tons copper annually at significant margins.

    New Zealand remains important to Oceana, however. In June, the company announced that it had entered into a definitive agreement to acquire the Waihi gold mine and surrounding exploration ground from Newmont Mining Corp. [NEM:NYSE] for $101M plus other considerations. We consider this as a positive step, as it adds critical mass to its New Zealand operations. Waihi has potentially three or more years of production and that could expand even further depending on its success in exploration at Correnso and elsewhere. This is a prudent, small-scale acquisition that adds to Oceana's existing operational base. One of the worries that people had about Oceana was that it would acquire an asset that was inconsistent with the current market environment and the team's current production philosophy. Instead, Oceana made a synergistic acquisition that was aligned with the team's focus of delivering margin, and which has demonstrable exploration upside that could be integrated into future production.

    TGR: Newmont and Barrick Gold Corp. [ABX:TSX; ABX:NYSE] have been ridding themselves of a fair number of properties recently. Will this trend continue?

    GM: Yes. Across the mining space, the larger companies have been divesting smaller-scale assets and assets with lower-defined mine lives in order to deleverage, and harmonize operational management. The smaller companies that buy these assets have the potential to improve the operating cost structure at these assets, refocus the local workforce and test for future reserve potential.

    TGR: How big do Tahoe, OceanaGold and B2Gold want to become?

    GM: That's a good question for their respective management teams. These companies have been buying assets that marry well with the practical capacity of their operating teams. I believe that the reasonable plan for these companies is to grow at a modest pace that is commensurate with their capacity. There is a dearth of mid-tier gold producing companies, and so that's probably a reasonable space to grow into whether by organic growth, acquisition or a combination of both.

    TGR: Has your rating of any of these companies changed recently?

    GM: After Tahoe's purchase of Rio Alto and its Q1/15 performance was announced, our rating changed from Hold to Buy. We like the team and its near-term focus to support production growth and bolster operating margin. Tahoe has a world-class asset in Escobal that provides a cornerstone free cash flow generator that will enable management to consider pragmatic and timely future acquisitions.

    TGR: What are your two favorite African gold development projects?

    GM: One that is at the front of the list is Asanko Gold Inc.'s (NYSEMKT:AKG) Asanko gold mine in Ghana. We visited it last month. It's likely more than 50% complete now and on schedule for its first pour in February 2016. Phase 1 is on track to meet its capex of $295M. That said, we expect that Asanko is supported by a $40M liquidity buffer [cash and debt] beyond the project contingency within the $295M capex figure. We like the jurisdiction, and the onsite development team has considerable experience in building mines across Africa.

    With phase 2, Asanko has the capacity go from about 200 Koz annually to 400 Koz starting in 2018-2019. Altogether, Asanko has more than 4 million ounces [4 Moz] in reserves and more than 10 Moz in resources across its Asanko gold mine asset portfolio. We believe that the company trades relatively cheaply compared to its underlying net asset value, and our target price projects the company's market price to move toward the net asset value per share as the mine moves closer to production.

    TGR: So you were impressed by the economics of the phase 2 expansion announced May 14?

    GM: Certainly. Asanko looks to utilize the synergies inherent in the project given the proximity and characteristics of the deposits to be exploited in a phase 2 operation, as well as the infrastructure already being built for phase 1 [e.g., processing plant footprint, tailings dam]. These synergies greatly improve on the economics of phase 2 rather than it being a standalone operation. We are looking forward to the full feasibility report due next year, so we can review other potential the company has been able to squeeze out through further optimization.

    TGR: What are signs investors should be looking for to indicate an upward shift in market sentiment?

    GM: Fundamentally gold price is a significant determinant on sector sentiment, so we look for development of pricing stability to improve sector sentiment on the equity side. In addition, success breeds success, where pricing support is also expected to be aided by the improvement in operational performance from the producers, as well as continued consolidation in the sector. Together these factors could foster renewed interest in the sector.

    TGR: Geordie, thank you for your time and your insights.

    This interview was conducted by Kevin Michael Grace of The Gold Report and can be read in its entirety here.

    Geordie Mark is the co-head of mining research at Haywood Securities. Prior to this, he was an analyst with Passport Capital and was vice president of exploration for Cash Minerals. Before joining the exploration industry full-time, he lectured in economic geology at Monash University, Australia, and served as an industry consultant. He holds a Ph.D. in geology from James Cook University.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.

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    DISCLOSURE:
    1) Kevin Michael Grace conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an independent contractor. He owns, or his family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Tahoe Resources Inc. and Asanko Gold Inc. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    3) Geordie Mark: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: Asanko Gold Inc. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
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  • Chris And Michael Berry: What The Boomers Got Wrong—And Right—About Natural Resource Investing

    What do Gen Xers not understand about value investing? What can Millennials learn from today's resource investors? In anticipation of Father's Day, The Gold Report, quizzed Chris and Dr. Michael Berry, authors of the Disruptive Discoveries Journal, on how investing has changed over the years in the gold, silver, niche metals and energy space, and what they are investing in today to make sure they survive to see the next cycle.

    The Gold Report: Mike, we often hear that the current generation doesn't realize how good they have it compared to when you had to walk uphill both ways through snow to make a trade. Is it easier to invest today with all the resources online and pundits around every corner or is it harder to cut through the noise and find the best opportunities?

    Michael Berry: While the Internet makes it easier to do research and make a trade, that doesn't mean it is easier to make a good trade, or better still, a smart long-term investment. I think it's challenging today. It's easy to trade, but much more difficult to create real wealth. A P/E multiple used to have real meaning. Today, the pace of the market is so fast, there are so many flash traders, so many games being played and so many nickels being minted, that it is difficult to figure out what is real. There are debt and equity bubbles out there that have been being created for the past two decades. They can be difficult to take advantage of because investors have to go against the prevailing thinking.

    Hedge funds can't make it today; only the private equity players seem to be successful and they have tremendous advantages. Almost all central bankers are in the investment game now. The Federal Reserve owns 25% of the Treasury bond market. What do they plan to do with their investment? There is US$9 trillion sloshing around the world today and a global exchange rate devaluation. These issues make central bankers powerful new players and make the market more challenging for individual investors.

    TGR: Chris, did the boomers and the flash traders wreck it for the rest of us?

    Chris Berry: Algorithmic trading has raised many issues while at the same time solving others. Regarding the boomers wrecking it for us, I don't necessarily think so. True, debt and deficits must ultimately be reckoned with and its through debt that we in the West have been able to live beyond our means, but the cost of technology is declining so quickly and the opportunities that it brings paint a reasonably optimistic view of the future, in my eyes. There are clear structural challenges and inefficiencies in the markets today, but I have faith in human nature to confront and solve these.

    TGR: Chris, you just spoke at the Cambridge House Investment Conference in Vancouver [See our story on the Vancouver conference takeaways here]. What was your message to current resource investors looking to take advantage of the opportunities you see all over the world?

    CB: I discussed the idea of disruption in energy markets and I laid out the case for why segments of the energy markets are ripe for disruption and offered some areas where I think opportunities exist. According to the World Bank, the urbanization rates in China [53%] and India [32%] are still far below those in the West. Most economists would consider a country "urbanized" when the rate hits 75% [the US and Canada are at about 81%]. The percentage differences equate to over a billion people who live at a fraction of our quality of life. Data like this shows that there are opportunities to employ new development models that disrupt the old patterns.

    TGR: Are energy metals-lithium and cobalt in particular-part of that disruption solution?

    CB: Yes, but it may unfold differently than we are currently forecasting. I define an energy metal as any metal or mineral used in the generation or storage of electricity. That includes lithium and cobalt, but also copper and silver, which have much larger markets with a lot more price transparency. The real growth, however, will be in niche energy metals, including lithium, cobalt and scandium, for example. The demand side is positive for all of these metals over the next 5 to 10 years.

    Lithium demand is growing by 8-10% per year. As we sit here today, the potential for supply disruptions exists in lithium due to major producers having production issues and juniors facing difficulties accessing the major funding for production decisions. Cobalt demand is growing anywhere from 7-9% on a year-over-year basis.

    TGR: What companies could move to fill that demand in the lithium, cobalt, copper and scandium space over that time?

    CB: In the immediate term, the existing producers of these metals are going to handle the looming demand. Five years from now, we'll need additional supply and this is when the aspiring producers could benefit.

    With cobalt, the large-caps are where I am focused. Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), Glencore International Plc (OTCPK:GLCNF) [GLEN:LSE] and First Quantum Minerals Ltd. (OTCPK:FQVLF) [FM:TSX; FQM:LSE] are all examples. To be clear, cobalt is a very small part of their business-it's essentially a byproduct of copper and nickel mining. However, I think it's an important one, given the need for cobalt in battery growth. The cobalt value chain is not vertically integrated very well, with a majority of supply coming from one country [the Democratic Republic of Congo] and a majority of the refining taking place in another [China]. Freeport-McMoRan is one of the largest refiners of cobalt outside of China, and so it's been a part of its business I pay close attention to. I have also begun looking at cobalt recycling. A company called Umicore Group (OTCPK:UMICF) [UMI:BRU] is a particular focus in that area.

    I think a top-down approach is also the best method to evaluating the lithium sector. I've said in the past that lithium is really an oligopoly and when you look at the major producers, they're really chemical or agricultural companies with lithium as a side business. I suppose the opportunity lies in the fact the major producers are all facing different challenges. Sociedad Química y Minera de Chile S.A. (NYSE:SQM) is facing political challenges in Chile and is effectively capped on what it can produce. FMC Lithium Corp. (NYSE:FMC), one of the other major lithium producers in the world, has had production and political challenges. That said, companies like those can produce lithium at a low cost, so any companies looking to compete will have to meet or beat their production costs. I think this requires leveraging technology to do so.

    Albemarle Corp. (NYSE:ALB) looks particularly well placed given its acquisition of Rockwood Holdings, which was the number one producer of lithium compounds in the world before it was taken out in a $6.2 billion deal. Lithium production also emanates from China from the likes of Sichuan Tianqui Lithium Industries [002466:SHE] and Jianxi Gangfeng Lithium [002460:SHE], but the insane volatility of the share performance in the Chinese markets are not for the faint of heart.

    TGR: Mike and Chris, you've both lived through a number of investing cycles. Where are we in terms of the rare earth [RE] cycle?

    CB: We're close to the bottom. It's difficult to tell when the current down cycle will turn, as getting reliable data out of China is always challenging. It looks like China is serious about addressing its environmental challenges and demand for certain products that require REs continues to grow well above global GDP-two supportive factors for the market. Illegal mining has added excess supply to the marketplace and kept a lid on prices. Because of this, leveraging technology to ensure aspiring producers can compete with the "China price" is imperative.

    I'm paying particularly close attention to advances in molecular recognition technology, ion exchange and solvent extraction, all of which are very promising. China is not going to give up its stranglehold on the market no matter what the World Trade Organization or anybody says. If you want market share in this space, you have to beat China on price. The Siemens AG [SI:NYSE] deal with Molycorp is a positive sign that major end users are looking to secure REs outside of China, despite the bleak future for Molycorp. We need to see more of that to reignite investor interest.

    TGR: What is more important for a RE company, the resource, the processing chemistry or the agreements with the end users?

    CB: If you don't have an offtake agreement, and I don't mean a letter of intent or a memorandum of understanding, I mean a binding offtake agreement, then nothing else matters. A binding offtake agreement is a vote of confidence that you can produce a product that an end user is certain it can integrate into its existing supply chain. Unfortunately for investors, the offtake is typically the last piece of the puzzle to fall into place. Usually, a mining company will need to establish positive economics for a project at a number of different pricing scenarios first. Unless the economics are robust, getting an offtake agreement is not likely, but without an offtake in place, the project is never going to move forward. So it's sort of a chicken-and-egg phenomenon. And it is not just with REs. It's the same thing with lithium, cobalt, graphite and some of these other niche metals.

    TGR: Mike, are you seeing the producers stepping up and doing deals as they see explorers moving projects forward? Are you anticipating more mergers and acquisitions in the near future?

    MB: Many explorers have stopped moving projects forward for a lack of capital infusion. Mergers are getting done. Unfortunately, because of the duration of this bear market, too many are being done for pennies on the dollar. Even the big gold companies are trimming marginal projects that they otherwise would have developed and kept in inventory. They will wish they had kept them. This bleak setting sets the stage for a massive renaissance in the price of these metals in two to three years. And we'll benefit from that when it comes. Inflationary expectations, when they arise, will tell us when this renaissance is in front of us.

    TGR: What are some RE, silver or gold companies that you think are poised to be bought out?

    MB: Almost all of them are struggling. One that's struggling with an extremely undervalued share price is Silver Wheaton Corp. (NYSE:SLW). It is a great buy right now. The stock has really been beaten up. It gets 25% of production from a number of different silver deposits at $4/oz or $5/oz, including Goldcorp Inc.'s [G:TSX; GG:NYSE] Penasquito project with 1 billion ounces of silver in reserve. The shares are presently trading down 33% from their 52-week high.

    There are some really good plays out there that I think will eventually be taken out by their bigger brothers. Quite a few of them are cheap. I'm more interested now in silver and gold companies because they are such a bargain relative to the energy metals companies Chris has been watching. I am focusing on companies that are not in production, not likely to be in production and have enough cash to sustain themselves through the next couple of years. I like to invest in non-public companies at present. There are some great projects that will bloom by 2020 out there.

    CB: On the niche metal side, I am not anticipating a lot of accretive M&A. The global RE market is too small for a major mining company to acquire a junior. It doesn't "move the needle" on the balance sheet. In lithium, I think the Albemarle-Rockwood deal was the last large deal we'll see for awhile. I would be extremely surprised if an auto manufacturer actually bought an equity stake in a lithium or graphite aspiring producer. Perhaps technology sharing or possibly a long-term offtake agreement that would act as a long-term call option, but that's it. The energy metals companies are going to have to manage their balance sheets appropriately, minimize dilution and survive until demand outstrips supply. That is why I am focusing on companies that can leverage technology to lower costs. Low-cost potential producers have a chance. The rest do not.

    MB: I agree with Chris about the power of technology. Look at the oil industry. The Saudis came out last Thanksgiving and said, we're going to take the American oil industry's staggering new production, specifically the shale oil industry, off line. They did not reduce their production. In effect, the Saudis flooded the market with oil to drive oil prices from $100/barrel [$100/bbl] to $40/bbl. American shale drillers got technology hungry, and they learned how to be better, more cost-effective drillers. Now, the U.S. shale oil industry is absolutely the swing producer in the world. At $60-65/bbl oil, shale producers make money in spite of what the Saudis have tried to do.

    We just used a helicopter technique called VTEM Plus to see several hundred meters deep on our privately held Nieves property. We may have identified a very large intrusive system. The cost? A little over $200,000 for the 55 square mile property. So technology is coming to mining, and it will separate the men from the boys.

    TGR: Are you focused more on macroeconomic trends like whether oil prices are going up, or on specific stories and whether they're taking advantage of new technology?

    MB: We have shifted a little to playing the royalty side of the equation more. Investors have established a royalty package in the Texas oil fields. They don't drill; they simply buy the property and lease it back to the drillers. Last year, this investment yielded 9.5%. It's just a different way of thinking about how to play the commodity market in a market that doesn't have a yield where the interest rate is negative. So we hope to win no matter what happens, and we do not have working interest risks. So far, it's worked pretty well.

    There are some great companies, by the way, in the shale sector-EOG Resources Inc. (NYSE:EOG) and Chesapeake Energy Corp. (NYSE:CHK) to name two. Plus the survivors in the shale oil fields will be highly technology competent. But we don't invest in the companies. We buy properties and lease it back to the operator.

    TGR: What about solar power? Are there some solar companies you like?

    CB: I've spent a lot of time looking at the solar industry over the last three years. This is where the growth is, and both solar cell costs per watt and energy storage costs are falling precipitously. I think increased scale and distributed generation have the potential to remake our energy infrastructure in the coming decade.

    The solar panel business has really become commoditized and today you see a great deal of research and development going toward increasing panel efficiency, which is the percentage of sunlight that gets converted into electricity. The best I've seen today are in the low 20% range, but this is slowly increasing, which helps the overall economics.

    One area to think about in the solar space is with "yieldcos." Essentially, the yieldco is publicly traded and owns solar power projects with power purchase agreements that can provide long-term income. The yieldcos have one product, electricity, and they "pay" their investors with revenues generated from the sale of the electricity. The solar companies like this, as it provides a low-cost source of capital for expansion. Investors benefit in that there is an income stream and the risky parts of the business are separated. This concept is similar to the master limited partnership in oil and gas. The most recent example is a yieldco formed between First Solar Inc. (NASDAQ:FSLR) and SunPower Corp. (NASDAQ:SPWR), but the idea has been around since 1999.

    TGR: Chris, you're a father. What will be the hot investing areas for your children?

    CB: Everything is cyclical, particularly the commodity space, so I'm not sure if there's a specific area I'd tell them to focus on. I have begun to save money for my girls for college and I hope to be able to give them a choice: You can use the money for college, or you can use the money to start a business that can help address some of the societal issues we addressed earlier in the interview. Entrepreneurialism increases quality of life and creates wealth at the same time. That's a lesson I hope I can impart to my girls.

    TGR: Mike, what advice do you have for investors just learning about the natural resource space?

    MB: In a world with seven billion people seeking a higher quality of life, I think copper, gold and silver eventually will be more valuable than ever. Gold is constant. Gold is going to continue to be valuable because even now, China is buying as much gold as possible. It is rumored to have purchased the equivalent of the total mined gold production in 2014. The Chinese want their currency, the yuan, to be part of the reserve currency standard, and it will be eventually. They are going to have to have enough gold to back it. Silver, in addition to its monetary character, is used in so many industrial and health care products.

    I think oil will bounce above $100/bbl again. Prices will go up and down, and you have to play it as it moves. But I think those liquid markets are easier to manage than smaller markets like graphite. But then again, I've been around for a while, so I could be wrong.

    This interview was conducted by JT Long of The Gold Report and can be read in its entirety here.

    Chris Berry is a writer, speaker and analyst who is focused on the dynamism of energy metals-those metals or minerals used in the generation or storage of energy. He is a student of the theory of Convergence and believes it will have profound effects across the globe in the coming years as urbanization, innovation, and technology create multiple opportunities. He helped create a start up focused on computing with words. Active on the speaking circuit throughout the world and frequently quoted in the press, Berry spent 15 years working across various roles in sales and brokerage on Wall Street before shifting focus and taking control of his destiny. He is the co-author of The Disruptive Discoveries Journal. Berry holds a Master of Business Administration in finance with an international focus from Fordham University, and a Bachelor of Arts in International Studies from The Virginia Military Institute.

    From 1982-1990, Michael Berry served as a professor of investments at the Colgate Darden Graduate School of Business Administration at the University of Virginia, during which time he published a book, "Managing Investments: A Case Approach." He was the Wheat First Professor of Investments at James Madison University. He has managed small- and mid-cap value portfolios for Heartland Advisors and Kemper Scudder. His publication, Morning Notes, analyzes emerging geopolitical, technological and economic trends. He travels the world with his son, Chris, looking for discovery opportunities for his readers.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.

    Bottom of Form

    DISCLOSURE:
    1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: Silver Wheaton Corp. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    3) Chris Berry: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Michael Berry: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. My company has a financial relationship with the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    5) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    6) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.
    7) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (NYSE:I) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8999
    Fax: (707) 981-8998
    Email: jluther@streetwisereports.com

    Jun 15 5:34 PM | Link | Comment!
  • Hard-Core Investors Found Real Resource Projects In A Vancouver Conference Center

    When the market bears are growling, contemplating a trip to a showcase of the companies currently in the grip of that punishment can seem daunting, but resource experts say now is exactly the time hard-core investors need to be out talking to management, hearing their stories and figuring out which companies will be on top when the good times come. The Gold Report spoke to some of the experts at the recent Metals Forum and Cambridge House Vancouver Resource Investment conferences, who shared some of the nuggets they gleaned from the podium and exhibit hall.

    Frank Holmes, CEO and chief investment officer at U.S. Global Investors, gave a talk at the Cambridge House conference titled "Fear Trade Sees Gold as a Store of Value When Interest Rates Are Negative." Holmes always focuses on the global supply-and-demand equation whether it is traveling to better understand the odds and implications of a possible strike in Chile or changes in what he calls the "love trade" based on buying gold for celebrations in India and China. "This is a classic bottom-of-the-trough year," he said. He pointed to companies slashing exploration costs, apathetic investors, and the bottom-line impact of "draconian" regulations for raising capital. "The cost of being a public company is almost prohibitive," he said.

    On the supply side of the balance sheet, Holmes warned that reserves for some commodities-particularly copper, gold and zinc where not enough had been invested over the last 15 years-are starting to shrink. "Any disruption in supply or pickup in demand will lead to a higher price. That could happen as soon as this year," he said.

    On the demand side, in addition to the traditional seasonal jewelry demand, he cautioned investors to watch the actions of the Federal Reserve as interest rate hikes could cause a rush of fear trade to the safe harbor of gold.

    John Kaiser, author of Kaiser Research Online, celebrated the practical spirit of the hard-core companies and investors still attending conferences and moving projects along during a bear market. He was also looking at the implications of a possible Federal Reserve interest rate hike in his presentation at the Cambridge House conference titled "Fast and Slow Trains out of the Bear Market Trough." "It could cause a financial meltdown in the bond market that ripples into general equity markets with knock-on effects similar to 2008, except this time the Fed, which has no tools left, would be helpless to do anything about the resulting malaise. The anxiety among traditional resource investors about this possible outcome that has long-term negative implications for the resource sector has paralyzed them with fear while the rest of the market simply ignores the resource sector as the dud market of recent memory."

    Kaiser believes that "the transition to higher real interest rates is critical to put the American economy back onto an organic growth track, but I think the anxiety about an accompanying earthquake that topples the economy into a depression is misguided. We need the banks to start lending to consumers again so that businesses stop sitting on their trillions, buying back their own stock, and instead start investing in a future. There is no productivity windfall at hand to fuel economic growth so it will require a consumer credit expansion, particularly in the home mortgage area where the deleveraging has come to an end, but net mortgage growth is not yet happening. I suspect that when the interest rate hike happens bond yields will adjust so quickly markets will simply accept the lower bond prices and equity investors will be relieved that the long awaited correction has finally happened. When the so much anticipated "train wreck" of higher interest rates happens, it will not be the catastrophe people expect. It will be the trigger for a rush back into the resource sector that has been busy cleaning up its affairs. This transition to higher real interest rates will be bad for gold in the interim, but if I am correct that higher interest rates are key to putting the global economy back onto a prosperity growth track, gold will not remain weak for long. The scenario that I dread for the resource sector is that the normalization of interest rates will keep being postponed into the future, leaving us stuck with a weak near- to medium-term outlook for all metals."

    Or, as Steve Palmer, founding partner, president and chief investment officer of AlphaNorth Asset Management said, it can only get better from here. "The Canadian junior market is very depressed right now and the odds are highly skewed in favor of the upside," he said in his presentation at the Cambridge House conference.

    Eric Coffin, editor of Hard Rock Analyst, spoke at the Metals Forum and urged attendees to take the time to listen and talk to mining company management at events like the ones held over the weekend in Vancouver to better understand their potential and the milestones to watch. "It is easier to monitor company progress and you have a much better feel for management if you meet them in person," he said. Personally, Coffin is planning to look at some of the companies he isn't as familiar with now that he has seen their updates.

    Thibaut Lepouttre, editor of Caesars Report, flew to the Metals Forum from his home base in Belgium to deliver the message that there are still quality companies out there that have a good chance to continue to advance their projects despite the current turmoil in the markets. "A small conference is a good way to get to know the companies," he said.

    The Companies

    Nevsun Resources Ltd. (NYSEMKT:NSU) was a favorite. "This company is always impressive," Coffin said. Nevsun reported $37M in operating cash flow from the Bisha open-pit copper mine in Eritrea in the first quarter of 2015. "Nevsun Resources has a large cash position and is transforming itself into a zinc producer from next year on," Lepouttre said.

    No More Hyperventilation

    The best news at the conference, according to Kaiser, was that all the talk about pending hyperinflation was gone. "After five years of being wrong, no one wants to hear that anymore," he said. He classified the attendees not as goldbugs investing based on emotion or ideology, but real investors with an appreciation for how the resource market works. "They are there looking for insights on the cycle and specific companies, not sermons on the debasing of the dollar."

    This interview was conducted by JT Long, The Gold Report and can be read in its entirety here.

    Want to read more Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Interviews page.

    Top of Form

    Bottom of Form

    DISCLOSURE:
    1) JT Long conducted this interview for Streetwise Reports LLC, publisher of The Gold Report, The Energy Report and The Life Sciences Report, and provides services to Streetwise Reports as an employee. She owns, or her family owns, shares of the following companies mentioned in this interview: None.
    2) The following companies mentioned in the interview are sponsors of Streetwise Reports: None. The companies mentioned in this interview were not involved in any aspect of the interview preparation or post-interview editing so the expert could speak independently about the sector. Streetwise Reports does not accept stock in exchange for its services.
    3) John Kaiser: I own, or my family owns, shares of the following companies mentioned in this interview: None. I personally am, or my family is, paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    4) Eric Coffin: I own, or my family owns, shares of the following companies mentioned in this interview: Nevsun Resources Ltd. I personally am, or my family is, paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    5) Thibaut Lepouttre: I own, or my family owns, shares of the following companies mentioned in this interview: Nevsun Resources Ltd. I personally am, or my family is, paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview. Comments and opinions expressed are my own comments and opinions. I determined and had final say over which companies would be included in the interview based on my research, understanding of the sector and interview theme. I had the opportunity to review the interview for accuracy as of the date of the interview and am responsible for the content of the interview.
    6) Interviews are edited for clarity. Streetwise Reports does not make editorial comments or change experts' statements without their consent.
    7) The interview does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer.

    8) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview until after it publishes.

    Streetwise - The Gold Report is Copyright © 2014 by Streetwise Reports LLC. All rights are reserved. Streetwise Reports LLC hereby grants an unrestricted license to use or disseminate this copyrighted material (NYSE:I) only in whole (and always including this disclaimer), but (ii) never in part.

    Streetwise Reports LLC does not guarantee the accuracy or thoroughness of the information reported.

    Streetwise Reports LLC receives a fee from companies that are listed on the home page in the In This Issue section. Their sponsor pages may be considered advertising for the purposes of 18 U.S.C. 1734.

    Participating companies provide the logos used in The Gold Report. These logos are trademarks and are the property of the individual companies.

    101 Second St., Suite 110
    Petaluma, CA 94952

    Tel.: (707) 981-8999
    Fax: (707) 981-8998
    Email: jluther@streetwisereports.com

    Jun 08 3:39 PM | Link | Comment!
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